36 AVESCOGROUPPLC ANNUAL REPORT 2009
www.avesco.com
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED 30 SEPTEMBER 2009
be expensed rateably over the vesting period is determined by reference to the fair value of the options or shares determined at the grant date, excluding
the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in
assumptions about the number of options that are expected to become exercisable or the number of shares that the employee will ultimately receive. This
estimate is revised at each balance sheet date and the difference is charged or credited to the income statement, with a corresponding amount to equity.
The proceeds received on exercise of the share options net of any directly attributable transaction costs are credited to equity. A charge is also recognised in
respect of the employers' National Insurance contributions as a result of the Long Term Incentive Plan and share option scheme. The charge is based on the
intrinsic value at the balance sheet date and is spread over the performance period.
2.19 Provisions
The Group holds provisions on the balance sheet for restructuring, reorganisation, dilapidation and onerous contracts. These provisions cover costs resulting from
the strategic reorganisation and relocation of personnel across the Group, headcount reductions, dilapidation costs and onerous contracts. Provisions are
recognised when a detailed formal plan has been drawn up and the main features of the plan have been announced to those affected by it. Where the time value
of money would give rise to a material difference in the future cash outflows of the Group, the provisions are discounted at a rate to reflect the time value of money
and the risks associated with the liability. Movements in the provision due to the passage of time are recognised within ‘Finance income’ or ‘Finance costs’.
2.20 Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities.
Revenue is shown net of Value Added Tax and other sales taxes, net of customer discounts and after eliminating sales within the Group.
The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and
when specific criteria have been met for each of the Group’s activities as described below. The amount of revenue is not considered to be reliably measurable
until all contingencies relating to the sale have been resolved.
Revenue recognised in the income statement but not yet invoiced is held on the balance sheet within ‘Trade and other receivables’. Revenue invoiced but not yet
recognised in the income statement is held on the balance sheet within ‘Trade and other payables’. Revenue from the disposal of fixed assets is not treated as revenue.
Revenue can be split as follows:
a) Supply of services
Sales of services are recognised proportionally over the duration of the service or hire period, provided a right to consideration has been established.
b) Supply of goods
Revenue from the supply of goods is recognised as soon as all substantial risks and rewards relating to the title of the goods have been transferred to the
customer.
2.21 Leases
a) Finance lease contracts
A significant proportion of the Group’s financing is provided by hire purchase contracts and finance leases. Throughout the annual report and financial
statements the term finance lease refers to hire purchase contracts, finance leases and sale and leaseback arrangements with financial institutions and
suppliers.
Where these arrangements result in substantially all the risks and rewards of ownership resting with the Group, the assets are included in the balance sheet
at cost less depreciation and the present value of future payments is shown as a liability.
The interest element of these arrangements is charged to the income statement over the period of the arrangement in proportion to the balance of capital
payments outstanding.
b) Operating leases
Rentals under operating leases are charged on a straight line basis over the lease term. Where significant operating lease incentives (such as a rent free
period in respect of properties) are received they are considered as an integral part of the net payment agreed for the use of the leased asset and
recognised over the period of the lease on a straight line basis.
2.22 Dividend distribution
Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are
approved by the Company’s shareholders. Interim dividends are recorded in the period in which they are approved and paid
3. Financial risk management
3.1 Financial risk factors
The Group’s activities expose it to a variety of financial risks:
a) Market risk
b) Credit risk
c) Liquidity risk
The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the
Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures.
Risk management is carried out under policies approved by the Board of Directors. Group treasury identifies, evaluates and hedges financial risks in close co-
operation with the Group’s operating units. Group treasury provides written principles for overall risk management, as well as written policies covering specific
areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment
of excess liquidity.
a) Market risk
(i) Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US
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